Better protections for contractors

Monday 13 January, 2020

Businesses might find themselves in the position of having to prove their workers are contractors, not employees, under a new set of proposals released by the Ministry of Business, Innovation and Employment (“MBIE”). MBIE has released a discussion document seeking feedback on a range of options to improve the rights of contractors and address the vulnerability that some contractors face in the workplace.

MBIE identifies two issues:

1. Employees being misclassified as independent contractors and missing out on minimum rights and entitlements; and
2. Workers in the ‘grey zone’ between employee and contractor status being vulnerable to poor outcomes.

Incorrect classification

To address the first issue, MBIE has identified 7 options to improve enforcement of the law and make sure that all employees are correctly classified and receiving the employment rights and protections to which they are entitled:

1. Increase proactive targeting by Labour Inspectors to deter employers from wrongly classifying employees as contractors.
2. Give Labour Inspectors the ability to decide whether workers are employees or contractors.
3. Introduce penalties for employers who misrepresent an employment relationship as a contracting arrangement.
4. Introduce disclosure requirements for businesses when they hire contractors, requiring the business to tell workers if they have been hired as contractors, including setting out their legal obligations and where they can seek advice before accepting the contracting arrangement.
5. Make it cheaper for workers to seek a declaration of their employment status, for example by waiving application fees for the Employment Relations Authority.
6. Make the business prove that a worker is a contractor if a worker alleges that they had been wrongly classified as a contractor, instead of an employee. Currently, the worker must prove that they are an employee.
7. Extend Employment Court or Employment Relations Authority decisions on the status of a worker to all workers in fundamentally similar situations.

Workers in the ‘grey zone’

To address the second issue, MBIE has identified 4 options to help vulnerable contractors without preventing less vulnerable contractors from working in a way that suits them or hindering or altering ordinary commercial transactions between genuine businesses. Options 1 and 2 change who is an employee under New Zealand law in order to increase the likelihood of vulnerable workers being protected by employment law. Options 3 and 4 increase protections for contractors without making them employees.

1. Define some occupations of vulnerable workers as employees, for example, cleaners.
2. Change the tests that the courts use to decide whether a worker is an employee or a contractor, for example, by giving contractors the right to request to be treated as employees after a certain amount of time, or introduce new tests to take account of the worker’s economic dependence on the business, or how much bargaining power the worker has to decide their terms and conditions.
3. Give some contractors, for example, courier drivers, the right to bargain collectively across entire sectors or occupations.
4. Create a new category of workers in between employees and contractors with some employment rights and protections, such as the right to a minimum wage, the right to paid leave, and protection against unfair dismissal.

Some of the proposed options represent major changes to New Zealand’s existing employment laws and could have a significant impact on businesses which currently employ contractors. Submissions on the discussion document close on 14 February 2020.

Please contact Mark Hammond or Fraser Wood if you would like help making a submission or if you have any questions arising from this article.